Carriers + Data Centers: Cloud Dream Team?

Cloud computing is forcing change throughout the telecom industry. For many service providers, it’s pushing them to rethink their data center strategies. After mostly abandoning their hosting businesses in the early 2000s, many are reinvesting with renewed vigor. In the last year, CenturyLink snapped up SAVVIS; Windstream got about a dozen more data centers with the PAETEC purchase; and EarthLink added to its holdings with Business Vitals. Verizon also bought Terremark but it, along with AT&T, has been investing in data centers for some time, analysts say. Still, the reason for the renewed spending is clear: cloud. And channel partners that want one-stop shopping for their customers will benefit from access to ready-made platforms once some wrinkles are ironed out.

Service providers long have been active in the data center space, but their reasons today are different compared to earlier years. Brian Washburn, research director of network services for Current Analysis, said service providers’ data center investment comes down to enterprise demand for cloud, which is anticipated to be “huge.” Recall that several years ago, there was much talk about what providers would do to avoid becoming dumb pipes. Cloud services are helping operators avoid that problem by combining telco and data center services. End users are running out of the power, space and people to run giant internal IT departments, said Rob Carter, director of managed hosting services at Windstream Hosted Solutions, the carrier’s data center division attained through M&A. They also don’t have the expertise to implement critical technologies such as virtualization and storage. And there lies the data center opportunity for service providers. Instead of running separate telco and hosting units, savvy carriers are marrying those capabilities, to great effect.

“It’s high value, high dollar,” Carter said. At Windstream Hosted Solutions, for example, the average customer spends $8,800 per month far higher than the average telecom user. Indeed, the majority of companies expect the cloud to support between 20 and 50 percent of their IT needs by 2013, according to Current Analysis. Because of that, “carriers want to be able to have a whole, end-to-end solution and customer locations and data center apps with consistent high quality of bandwidth and a high degree of security and trust,” Washburn said.

Among agents, this holds particular appeal. “The single-source trend will make it easier for our partners to help their customers procure a more ‘turnkey’ solution,” said Matt Harty, president and CEO of Converged Network Services Group (CSNG). Plus, he said, managing data center sales will be easier because there will be just one point of contact overseeing the entire application.

But there are some hold ups to this utopian future for agents. For agents, selling data center entails different discussions than they have held with customers over the past 10 years, said Greg Praske, CEO of Association Resource Group (ARG). “It’s complex,” he said. That means service providers need to offer thorough training and support. Some already are doing this through training, open houses, channel manager outreach and aggressive promotions, CNSG’s Harty said.

In addition, most carrier data center acquisitions are very new, so while some data centers are “aggressively engaged” in helping agents develop their market strategies, others remain embroiled in internal turf wars, Praske said. An example of this is found in the new rules of engagement cutting compensation for CenturyLink Channel Alliance members bundling Savvis services. “Those that stall may miss the big wave that is upon us,” he said. In turn, those battles, if not resolved soon, could hurt channel partners. The key is that “lots of new services are being developed,” Praske said. “It’s very important to have data center partners who are willing to be closely aligned with us in the channel.”

Despite these hiccups, sources expect data center cloud sales to pique the channel’s interest. As service providers refine their products, more partners will put cloud into their portfolios and generate revenue that, right now, they’re overlooking, said Harty. Providers have the same expectation, and some are funneling resources toward the channel.

Windstream, for instance, continues to hold the road shows started by its recent acquisition, PAETEC. The efforts aim to strengthen agents’ understanding of data center sales, since many of those partners remain in the early learning stages. “Right now we’re trying to get them educated and get this in front of everybody’s mind,” said Sarah Smith, senior analyst of channel marketing for Windstream. For the handful of agents selling data center now, Windstream offers different levels of support. With local opportunities, channel managers help the agent. With higher-end opportunities, the channel manager and a Windstream Hosted Solutions representative pitch in. In these cases, the typical buyer is a C-level executive. “They want to make sure we understand their business and that they’re talking to someone that gets it,” Carter said. “We recognize the channel needs assistance on this.”

EarthLink Business, too, anticipates that agents will become an even bigger part of its “aggressive data center strategy,” said J.R. Cook, vice president of channel partners for EarthLink Business. “Our partners clearly see the value, have the customer relationships and are intrigued with how it aligns with our nationwide IP solutions.” EarthLink Business did not provide details on its data center strategy as it relates to partners; those particulars appear to be in their infancy. However, Cook did say EarthLink Business will release an expanded data center product set, along with partner training, this year.

CenturyLink is in a similar position. “We are developing a way to scale [data center services] to offer the best solution for our indirect channels,” said Blake Wetzel, vice president of sales for the CenturyLink Channel Aliance. “We will communicate more about our strategy once its complete.” To be sure, aside from its SAVVIS purchase, CenturyLink also has an aggressive data center strategy based on partnerships with existing third-party facilities. At its mid-January partner meeting, Wetzel said the carrier, acting on agents’ suggestions, has built into and is jointly marketing with 140 data centers. He added that there are 24 more builds in process. “We are now connecting all these data centers on our fiber backbone,” he said. The data center initiative is “phenomenally successful,” due to a collaborative approach among CenturyLink, the facilities and the indirect sales team, Wetzel said. “We launched this in June of last year and we have about half a million dollars in MRC,” he added.

Thus, as service providers ready their data center services for wider channel distribution, agents need to prepare themselves as well. ARG’s Praske agreed. Cloud, with its data center options, “is the single greatest opportunity ever to be presented to the channel,” he said. “For channel partners who build to address these services, the opportunity for growth is unprecedented.”